After growing nearly 10 times in the past six years—from handling $300 million (Rs.1,395 crore today) of assets in 2005 to $3.2 billion in 2011—IL&FS Investment Managers Ltd (IIML), the largest private equity (PE) firm in India, plans to focus on consolidating its position this fiscal even as it is raising three funds.
“In 2005, given the growing opportunity base and stability of the PE industry, the strategy was to splice the business and create well-defined funds,” said Archana Hingorani, chief executive and executive director, IIML. Accordingly, IIML grew the business along three business segments—growth private equity, infrastructure and real estate.
“Today, the strategy is to focus more on controlling and growing these three verticals,” Hingorani said. “Opportunistically, we have also been adding new dimensions, such as the yield fund in real estate and private investments in public enterprises (PIPE) fund in the growth space.”
IIML, the PE arm of Infrastructure Leasing and Financial Services Ltd (IL&FS),is currently raising three funds —TARA IV, a growth equity fund; a rental yield fund; and its latest addition, a PIPE fund. Each of these funds will be $250-300 million in size.
“Through our Saffron merger, we are also trying to see if we can reduce the fund-raising cycle and access a new class of investors that is available through the listed markets,” added Hingorani.
In the first merger in the PE sector in India, real estate PE fund Saffron Assets Advisors Pvt. Ltd merged with IIML earlier this year.
According to Avinash Gupta, head (financial advisory) at audit and consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd, dabbling in PIPE funds is a strategy that only established funds with a track record can follow. “Their limited partners (LPs) will be ready to be a lot more flexible as they are assured that the fund can give them return,” he said.
While most funds have a small allocation of 15-20% of their corpus to invest in public companies, not many have a dedicated PIPE fund. In February, the four founding partners of Sequoia Capital India Advisors Pvt. Ltd quit the firm to revive their earlier fund WestBridge Capital, which invests in publicly traded companies. Another example is Nalanda Capital, founded by former Warburg Pincus India managing director Pulak Prasad.
Hetal Gandhi, managing director, Tano India Advisors Pvt. Ltd, a PE fund, points out that funds look for such diversity in strategy because traditional PE investments, which typically are in private companies, may not have given expected returns to investors. Also making LPs aware that listed stocks have value is not an easy task. “You can’t go and buy a blue chip company stock. Such funds are more for companies that are small, in the growth phase, and exhibit PE type of growth.”
However, not just the fund-raising environment but the investment environment is also difficult today. According to Hingorani, investments are expected to be slower this year. “Given the muted state of the world economy and the slowing of the Indian economy, like two years ago, the focus is on honing the portfolio companies.”
In the last nine months, IIML has made five investments covering the hospitality, information technology, logistics and consumer spaces, and has done four exits including Continental Warehousing Corp. (Nhava Sheva) Ltd.
IIML expects it to take longer than usual to raise its funds. “While earlier it was possible to close a fund within 9-12 months, today we expect it to take 12-18 months,” said Hingorani. The fund-raising cycle has increased in line with the enhanced risk aversion across the globe. Many emerging markets, including India, have performed better than their Western counterparts, but offered a less than 25% return.
In addition, changing LP norms for evaluating fund managers and the continued sluggishness in the world economy have contributed to the longer fund-raising cycle. “Just like how the time to close an investment has increased, LPs are also taking much longer to close,” pointed out Hingorani.
Source: Livemint